On January 1, you sold short 100 shares of XYZ stock at $20 using a 50% initial margin. The interest rate on the margin account is 10% annually. On April 1 (in three-months), you covered the short sales by buying stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. Assume you received interest on all your assets, i.e. the sum of the short sale proceeds and the margin.What is the value of your assets and equity on April 1?What is the total rate of return on equity?

Given, Stock XYZ sold at = $20 Initial margin = 50% Interest rate = 10% annually Bought stock at =…

Answered: On January 1, you sold short 100 shares…

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Chapter6: Fixed-income Securities: Characteristics And Valuation

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Problem 18P

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On January 1, you sold short 100 shares of XYZ stock at $20 using a 50% initial margin. The interest rate on the margin account is 10% annually. On April 1 (in three-months), you covered the short sales by buying stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. Assume you received interest on all your assets, i.e. the sum of the short sale proceeds and the margin.
1. What is the value of your assets and equity on April 1?
2. What is the total rate of return on equity?

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